The Australian Energy Regulator (AER) has released its final decision on Jemena Gas Networks’ gas access arrangement for the regulatory period from 1 July 2025 to 30 June 2030.
Distribution gas networks are required to submit access arrangement proposals to the AER outlining the services they will provide, the tariffs for those services and other terms and conditions on which the services will be provided to their customers over the next five years.
The final decision for Jemena allows for $3.107 billion ($ nominal) in total revenue to be recovered from consumers over the 2025–30 period. This is $139.7 million (4.3 per cent) lower than Jemena’s revised proposal.
Compared with the current access arrangement, it is an increase of $394.2 million ($2024–25, 16.0 per cent). The AER said there are several drivers behind this increase, including market variables outside of Jemena’s control such as a higher rate of return and higher expected inflation than for the 2020–25 period.
AER Chair, Clare Savage, said the final decision aims to balance a range of factors, including the uncertainty of gas demand during the transition to net zero, with an affordable access arrangement that provides for a safe, reliable and secure service.
“This decision has been made in the context of anticipated declining demand for gas network services while ensuring the gas network can efficiently and affordably support the current and future needs of consumers. This underpins the approach to several elements of our final decision,” Ms Savage said.
The AER has not accepted Jemena’s revised accelerated depreciation amount of $230 million ($2024–25), and instead determined a reduced amount of $115 million for the 2025–30 period.
Ms Savage said the lower accelerated depreciation amount in the decision reflects the current outlook and strength of policy signals surrounding the future role of Jemena’s gas network in New South Wales. This allows for an affordable and a measured start to accelerated depreciation.
“Making a start on accelerated depreciation is necessary to ensure that Jemena Gas Networks is not deterred from making efficient and prudent investments required to maintain safe and reliable services in the long-term interest of consumers,” she said.
“Accelerated depreciation can be used as one tool for reducing stranded asset risks while there is a wide consumer base; however, it has limitations and on its own can’t resolve the issues faced by the gas networks and customers from anticipated declining demand.
“Declining demand is ultimately the key driver of rising future network prices. So long as demand continues to decline, no affordable amount of accelerated depreciation will achieve long-term price stability.”
The final decision includes a reduced capital expenditure forecast over the 2025–30 period. The AER has substituted an alternative estimate of $717.4 million ($2024–25), which is $120.7 million (14 per cent) lower than Jemena’s revised proposal. As part of minimising JGN’s capital expenditure, the AER has also not accepted Jemena’s revised proposal of recovering $78.9 million in revenue to fund renewable gas connections from consumers.
“There are potential benefits of connecting biomethane to the gas network for some users. However, there is currently significant uncertainty around these investments. Our decision doesn’t prevent Jemena Gas Networks from undertaking the capital expenditure during the access arrangement period and seeking funding once these supply arrangements are more certain.
“The decision proposes an alternative pathway for investment in renewable gas connections that places less risk on consumers,” Ms Savage said.
The AER said that the energy transition is creating challenges that require gas networks to think about how key components of an access arrangement proposal may impact customers now and in the future. The AER acknowledged that Jemena demonstrated genuine commitment to engage with customers, seeking their views on difficult topics such as accelerated depreciation.
Jemena’s proposal included an innovative approach to tariffs, and the AER’s decision approves Jemena’s hybrid tariff variation mechanism for its gas transportation reference service, incorporating elements of both weighted average price cap and revenue cap regulation.
The final decision supports Jemena Gas Networks’ tariff reform to flatten its gas transportation tariff and to better align with the emissions reduction aspect of the National Gas Objective.
The hybrid mechanism also reduces Jemena’s incentive to grow the volume of gas carried by its network and should provide more long-term stable price outcomes for customers.
